Toll Brothers Loss Will Be Yours, Too

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The CEO of luxury homebuilder Toll Brothers has an explanation of his company's dismal fourth quarter earnings: even its well-heeled customers have a bad attitude about buying real estate. "We believe it may take some time for Americans to regain confidence in our economy, their job status and the benefits of home ownership," Chief Executive Officer Robert I. Toll told shareholders in his report.

Toll's losses widened significantly over last year's -- to $755.8 million for its fiscal year ended Oct. 31 -- and the company is taking more than $85 million in writedowns on land and developments. The Horsham, Pennsylvania-based builder expects to sell as few as 2,000 homes in the coming fiscal year, down from nearly 8,800 in 2005. Many houses and condos that are still selling have seen big price cuts.

But for Toll and other big builders that have come to dominate the new home market in many regions, plummeting land prices are good news. For one, it presents an opportunity to buy prime locations cheap. Toll has $1.8 billion cash on hand, more than it did last year, and is jumping on bargain land that less well-financed builders couldn't afford to hold on to.

Meanwhile, Toll is selling the land it's already got – it has 31,900 lots at its disposal, down from more than 91,000 three years ago. Why are Toll and other homebuilders selling good land at a loss? Because the hits they take on those sales promise to turn into big windfalls. Toll plans to take $50 million of its 2009 losses as a credit against future taxes it would otherwise owe the IRS. And thanks to a clause buried in the homebuyer tax credit extension passed by Congress last month, any losses Toll and other homebuilders took in 2008 and 2009 will entitle them to get refunds from the IRS for taxes they paid in the boom years of 2004 through 2006. Toll, which was among the builders that lobbied for the credit, stands to reap a $161 million windfall next year. That's nearly $66,000 in taxpayer dollars to the company for every home Toll Brothers sold.

Surely, many of Toll's customers wish they could get a cash gift from the government when they sell at a loss.
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